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European Central Bank President Mario Draghi urged the 17 countries that use the euro to move swiftly toward completing a full banking union to stabilize the bloc's financial sector.

It is vital to first cement the legal groundwork for a centralized banking regulator before the summer, Draghi told the European Parliament in Strasbourg on Tuesday.

"This is an absolute prerequisite if we want to embark upon our preparatory work in a timely and effective fashion," ensuring that the new regulator, which would act under the aegis of the ECB, can be operational by mid-2014, he said.

Once a regulator is in place, eurozone countries must take the next step by setting up an authority with the power to restructure or wind down failed banks and minimize costs to taxpayers, he insisted.

Many details of setting up such an authority still have to be hammered out. Some of the wealthier European states seem unconvinced of the project's urgency, fearing it might land them with the bill for bailing out banks in the bloc's weaker nations.

Draghi stressed that the deepening of the monetary union toward a full banking union "is essential."

"There is no question that more oversight, more community, more European oversight in the banking system of the member states can only do good," Draghi said.

The project is the cornerstone of the eurozone's efforts to stem its three-year-old debt crisis. It aims to break the link between weak banks and weak government finances. In Ireland, Spain and Cyprus, for example, the cost of rescuing failing banks overwhelmed public finances, forcing the governments to seek loans from their European partners.

Draghi explicitly welcomed the resolve of the European Commission, the 27-nation bloc's executive arm, to present a proposal on setting up a common authority to deal with failing banks by this summer.

But Germany, Europe's biggest economy, fears that might expose it to new costs to bail out ailing banks in other European nations. Finance Minister Wolfgang Schaeuble last weekend made it clear that Berlin won't accept a banking union without a full-fledged change of the EU treaties.

Changing treaties is a slow and complicated procedure that is rife with political uncertainty as it requires popular votes on the modifications in several European Union nations. That could delay the creation of a banking union by several years.

European leaders so far have also failed to reach an agreement on another essential part of the banking union - allowing the eurozone's permanent rescue fund, the European Stability Mechanism, to directly recapitalize ailing banks. EU finance ministers hope to reach an agreement in principle by June.

"It is obvious, the banking union will not be built and completed overnight but we must now create a clearly defined perspective for the banking union and its elements with a correspondingly clear and specific timeline in order to move forward and achieve this essential objective for the economic stability and the future of Europe," said Olli Rehn, the EU's top economic and monetary official.